If you’re wondering what services are exempt from sales tax in Michigan, you’re not alone—and you’re asking the right question. Michigan’s 6% sales tax applies mainly to tangible goods, but when it comes to services, the rules are more selective and nuanced. Whether you’re a small business owner offering repairs, consulting, cleaning, or digital solutions, understanding which services are taxable—and which aren’t—is critical to staying compliant and avoiding penalties.
In this guide, we’ll break down exactly how Michigan treats service-based businesses, with clear categories, common edge cases, and compliance tips. And if you’re looking for expert help navigating gray areas, certificate requirements, or multi-state operations, Hands Off Sales Tax (HOST) is your one-stop partner for hassle-free sales tax compliance.
Michigan’s Sales Tax Framework
Michigan’s sales and use tax structure is straightforward: a flat 6% rate applied statewide, with no local additions.
Sales Tax vs. Use Tax
- Sales tax applies to purchases of tangible personal property made within Michigan.
- Use tax, at the same 6% rate, applies to out-of-state purchases for use in Michigan, including certain services.
No Local Sales Tax
Michigan does not allow counties or municipalities to impose additional sales or use tax—making the tax burden consistent regardless of your business location.
Taxable Services under Use Tax
Although most services are exempt, Michigan explicitly taxes:
- Telecommunications, including both intrastate and mobile wireless services
- Lodging and accommodations, including hotels and short-term rentals
These use-taxed services effectively function like a sales tax, as they apply to the delivery or use of those services in Michigan.
Why Services Are Generally Exempt
Michigan’s sales tax is structured primarily to apply to the retail sale of tangible personal property, reflecting both constitutional mandate and statutory design. The state’s tax authority focuses on goods because the Michigan Constitution explicitly limits taxation to tangible items, placing services mostly outside the scope of the sales tax system .
Legal Foundations
- Constitutional limitations: The Michigan Constitution specifies that only “retail sale of tangible personal property” is subject to sales tax, which automatically excludes pure services such as consulting and legal advice .
- Statutory clarity: Michigan law (MCL 205.54a and related statutes) reinforces this focus by listing only specific services—like telecommunications or lodging—under taxable categories .
Practical Outcomes
As a result, most professional, business, personal, or digital services remain untaxed unless explicitly mentioned in statute. This structure prevents broad taxation of services unless lawmakers deem it necessary, offering clarity—but also necessitating careful interpretation when services are bundled with taxable goods.
Understanding this legal framework is critical. It safeguards businesses offering excluded services from unnecessary taxation and informs where careful compliance and documentation are still required.
List of Exempt Services
Michigan’s tax structure exempts most services—but a few exceptions and nuances apply. Here’s a clear breakdown of categories that are generally not subject to the 6% sales or use tax:
Delivery & Installation
- Delivery of goods (e.g., shipping products to a customer) is exempt.
- Installation labor is exempt when performed on nontaxable goods (e.g., installing a kitchen cabinet), since it’s considered part of the service for exempt tangible property.
Professional & Personal Services
A wide range of professional efforts are non-taxable, including:
- Legal, accounting, and consulting services
- Medical, dental, and veterinary care
- Engineering and architectural services
- Counseling, therapy, and personal coaching
- Personal grooming and wellness (e.g., haircuts, massages)
These services involve expertise or personal care rather than transferring tangible goods.
Educational & Healthcare Services
- Tuition, training, and educational services (schools, professional workshops)
- Healthcare services, medical screenings, and physical therapy
These are exempt because they are considered services, not tangible property transactions.
Household & Exterior Services
- Residential cleaning and janitorial services
- Landscaping, lawn care, and gardening services
These address property upkeep rather than supplying tangible materials. Pest control is also included as a service on real property .
Special Notes
- Services performed on real property (like installing carpet or painting walls) are exempt—even if materials are used—since they are improvements to real estate and not tangible goods.
- However, when repairing or maintaining tangible personal property (e.g., fixing a television, servicing machinery), the service becomes taxable under Michigan rules.
Understanding which services are exempt—and why—can save your business time and money while reducing audit risk. If you provide services that straddle the line between tangible goods and exempt offerings, HOST can help with meticulous classification and documentation to ensure compliance.
Taxable Services in Michigan
While most services are exempt in Michigan, several key categories are explicitly taxable under the use tax, treated similarly to tangible goods. Here’s what you need to know:
Repair & Maintenance of Tangible Personal Property
- Services such as electronics repair, machinery maintenance, or appliance servicing count as taxable services because they involve work on tangible property.
- To qualify for exemption, labor must be separately itemized from parts on invoices—otherwise, the entire charge becomes taxable .
Labor Bundled with Sale of Taxable Goods
- When labor is part of a transaction involving the sale of tangible personal property, the whole amount is taxable unless the labor portion is clearly stated separately.
- Example: Installing a TV stand while also selling it; both labor and goods are taxed unless labor is individually itemized and exempt.
Telecommunications & Lodging under Use Tax
- Michigan charges use tax on intrastate and interstate telecommunications services, including phone and some data services, unless statutory exclusions apply (e.g., certain wireless or 800 services).
- Lodging services—like hotel rooms, short-term rentals, and campground stays—are also taxable under use tax.
Understanding these taxable service categories is essential for compliance. If you’re providing repair services, bundling labor with products, or dealing in telecom or lodging, correct invoicing and collection of use tax are required. HOST can assist with accurate tax liability analysis, invoicing alignment, and ongoing compliance handling.
Documentation & Certificate Best Practices
Even if your service is exempt from Michigan sales tax, proper documentation is key to protecting your business during an audit. The state requires specific exemption certificates and clear recordkeeping to validate any non-taxed transactions.
Which Certificate to Use
For exempt services tied to resale or business use, businesses must use Form 3372 – Michigan Sales and Use Tax Certificate of Exemption
This form must be filled out and retained by the seller; it should not be submitted to the Michigan Department of Treasury unless requested. It applies when:
- You’re providing services that include exempt items (e.g., parts installed on exempt machinery)
- A nonprofit, government agency, or other exempt entity is the buyer
- You’re reselling taxable services or bundled items
Retention Requirements
According to the Michigan Department of Treasury, exemption certificates must be kept on file for at least four years, though best practices recommend maintaining documentation for 5 to 6 years to match audit periods and federal recordkeeping standards.
Businesses that fail to keep valid exemption certificates may be held liable for uncollected tax, penalties, and interest. To avoid this, ensure certificates are:
- Accurately completed and signed
- Updated when changes in customer status occur
- Stored digitally or physically in an organized system
When in doubt, HOST can help establish sound certificate management and recordkeeping protocols.
Common Gray Areas & Case Studies
While many services in Michigan are exempt, some fall into gray areas where taxability depends on how the service is structured or delivered. Understanding these borderline cases can help prevent accidental non-compliance.
Installation Labor
Installation charges are generally exempt when separately stated on the invoice and not part of a bundled taxable sale. However, if the installation is included in the sale of tangible goods (e.g., home fixtures), the entire amount may be taxable.
SaaS (Software as a Service)
Cloud-based software is not explicitly taxable in Michigan—unlike prewritten software delivered electronically, which is taxable. Still, if SaaS includes downloadable components or is bundled with tangible items, it may trigger tax liability.
Janitorial & Cleaning Services
Residential cleaning services are exempt, but commercial cleaning—especially involving tangible supply transfers (e.g., paper towels)—may be partially taxable. Vendors must carefully separate supply costs from labor to avoid issues.
Case Example: Commercial Install with Mixed Labor
A contractor installs security equipment (taxable) and runs structured cabling (service). If invoiced as one lump sum, the full amount may be taxed. Separating taxable and non-taxable charges on the invoice protects the buyer and seller.
In such gray zones, HOST’s team can help you analyze your service model, avoid common traps, and handle exposure retroactively if needed.
Simplifying Service Tax Rules With HOST
Navigating Michigan’s service exemptions can be tricky, especially when your business offers a mix of taxable and non-taxable services. HOST helps take the guesswork out of compliance by offering tailored support and tools that keep you audit-ready and penalty-free.
Sales Tax Clarity for Service Providers
HOST works closely with service-based businesses—cleaning companies, contractors, software vendors, consultants, and more—to identify exactly what’s taxable under Michigan law. Whether you’re dealing with installation labor, bundled sales, or occasional product sales, HOST ensures you apply the right tax treatment every time.
End-to-End Compliance Support
Here’s how HOST helps you stay compliant:
- Nexus Analysis: Determines whether your business activities trigger sales tax obligations in Michigan.
- Tax Matrix Creation: Maps your offerings against Michigan taxability rules—ideal for service bundles and digital services.
- Resale Certificate Generation: ResaleCertify helps you generate unlimited valid resale certificates for all vendors and for all states.
- Filing & Remittance: Manages timely, accurate filings—even zero-returns—on your behalf.
- Audit Defense: If you’re ever flagged, HOST steps in with documentation and representation.
For service-based businesses in Michigan, HOST acts as a complete solution—proactive, precise, and built to scale as you grow.
Don’t Let Sales Tax Confusion Stall Your Service Business
Understanding which services are exempt from sales tax in Michigan is essential to staying compliant and avoiding costly mistakes. From professional services to installation labor and SaaS, the rules are nuanced—and the consequences for errors are real. That’s where HOST steps in. Whether you’re unsure about gray areas, need help managing certificates, or want someone to handle filings entirely, HOST is your one-stop partner for sales tax clarity and compliance. Reach out today for a consultation and let HOST simplify the complexities so you can focus on growing your business.
Frequently Asked Questions
1. Are all services exempt from sales tax in Michigan?
No, not all services are exempt. While many professional and personal services are not taxable, services related to tangible personal property—such as repair, installation, or maintenance—can be taxed if bundled with a sale. Lodging and telecommunications services are also taxable under the Michigan Use Tax.
2. What are examples of exempt services in Michigan?
Exempt services include legal, accounting, and medical services, as well as residential cleaning, landscaping (in most cases), and educational services. Delivery and installation charges are also exempt when tied to the sale of exempt goods.
3. How can I prove a service is exempt from sales tax?
You may need to collect and retain a completed Michigan Sales and Use Tax Certificate of Exemption (Form 3372) from the buyer. This form supports your claim of exemption in case of audit.
4. Are SaaS and digital services taxable in Michigan?
SaaS is generally exempt if it is not bundled with taxable hardware or physical products. However, specifics depend on how the service is accessed and billed. It’s best to consult a professional for clarification on edge cases.
5. How long should I retain exemption documentation?
Businesses should keep exemption certificates and related sales documentation for at least six years, as required by Michigan’s audit and recordkeeping policies.
